Are you lucky?
That’s the one question Tobias Lütke always asks prospective employees. The co-founder and chief executive officer of Ottawa-based Shopify Inc. says the answers are illuminating because people really have to get into how they perceive the world around them. Plus, he finds it’s a bit of an indicator about how they will perform in an environment where everything is fast and fluid.
So does Mr. Lütke think he’s lucky?
“I’m ridiculously lucky,” laughs the 32-year-old computer programmer, a native of Germany who married a Canadian and came to this country a decade ago.
“Growing up, I spent my time doing useless stuff looking at computers. It was sheer luck that what I was interested in accidentally turns out to be one of the most useful skills you can have right now.”
Indeed, Shopify came about after Mr. Lütke and a partner started an online snowboard shop out of his garage in 2004. When they wanted to set up a shopping cart for the site, Mr. Lütke didn’t like what was on the market, so he wrote his own code – and soon realized the real business was in selling the software he’d created for himself.
By 2006, Shopify was formally launched. The company is now an e-commerce platform that other companies use to create their own online stores. It is serving more than 30,000 clients in 80 countries, ranging from Rovio Entertainment Ltd. (creator of Angry Birds) to Amnesty International to General Electric Co.
Although the privately owned Shopify won’t reveal its numbers, Mr., Lütke acknowledges annual revenue to be more than $20-million, and increasing by more than 100 per cent a year. According to the company, the gross merchandise volume for all merchants licensing its software is on track to grow to more than $500-million this year from about $275-million in 2011.
Shopify has also been very successful in securing outside funding, raising $22-million from investors in 2010 and 2011. After mobile sales doubled across its network last year, Shopify is focused on mobile commerce as its next area of growth. The company recently acquired mobile company, Select Start Studios – which builds iOS and Android apps for companies – as well as the domain name mcommerce.com.
As for that tricky interview question on luck, it may be worthwhile to come up with a good answer. Shopify pampers its 130 staff with perks such as catered breakfasts, lunches from local restaurants, gym memberships and even housecleaning twice a month.
Q: Is mobile the future of how we shop?
A: Mobile is the seismic shift that changes everything. In January this year, about 10 per cent of people bought products on our platform through mobile devices. By August, it was 22 per cent. And it’s going to become a lot more so.
What we have right now is really clunky – for example, to type in an entire address on a cell phone – yet, one in five people are already willing to do it. Presumably, if we put our heads together in this industry, we can make all this typing go away by smarter identities. It’s exciting. No one has figured out yet how to show a catalogue on a phone. They’re just taking the concepts that they use online, like a website, but it’s a different environment requiring a completely different treatment.
Q: How much are you investing in mobile?
A: It’s almost 50/50 of our R&D resources now. Given the current growth [of sales] on mobile, 50/50 could happen on mobile and tablet by next year at Christmas. How crazy is that? Tablets didn’t really exist until about three years ago.
Q: Will bricks and mortar become obsolete?
A: Absolutely not. It will be different but I think more important. I don’t think big-box stores will survive. They’re very utilitarian and you just go there to pick up a lot of things.
Q: You can now do a lot of that utilitarian kind of shopping online.
A: Exactly. Some box stores may still be around. But there are so many products and things out there, and so many communities, that the process of editorializing and curating collections of items is what’s going to be a big driver.
Q: How did you get your initial funding?
A: The snowboard sales generated a bit of money but we didn’t spend much at the start. It was just me doing programming. I worked out of coffee shops, didn’t take a salary and moved in with my parents-in-law, so the burn rate was pretty low. Eventually we needed help to get some designers, so we did an investment round to raise money and launch the product. We found a Toronto angel who invested in the company.
Q: What’s your approach when speaking to potential investors?
A: Years later, when I asked our angel investor why he put money in our company, he said, first, his parents were in Ottawa and he needed an excuse to go there more often, and second, he liked that I wouldn’t take shit from anyone. Somehow, that’s how I impressed him. It’s such a case-by-case situation that it’s hard to extrapolate any advice out of this. But it’s different out there right now. Seed investment usually doesn’t come from someone who made millions of dollars but from something like FounderFuel [and] accelerators. I think that’s actually a better model for a young company.
So why did I succeed? I think my first round of financing was largely a fluke. After that, I always raised money because we were already a profitable company. If you take a calculator and put some numbers in, then it’s easy to convince investors they can probably get a return on that investment. So the biggest selling point is a profitable company. But our real funding – the money that really made a difference – all came from our customers.
Q: Did you charge for the product from the beginning?
A: The product was free for three months just because I hadn’t finished the code yet. Once it was completed, we charged money. That’s different from how a lot of other companies do it. Most companies, particularly startups, don’t charge any money and just try to grab as much land as possible. That’s fine if you’re as successful as Twitter and Facebook to go back and figure out how you can make money with all these people. But I’m not interested in that. Maybe it’s my European background, but I like making a product people really like and charging money for it. That’s still the nicest business model. It couldn’t be simpler.
I think it’s wrong to offer product for free. There’s data that show if you charge people for a product, they’re more motivated to actually build on it or use it – probably because if you don’t pay for something, you just don’t simply assign it the same kind of value.
Q: What’s the biggest challenge with rapid growth?
A: The growth itself is challenging. We went from 30 people to over 100 last year. Now it’s 130. The first people you attract come to you because you’re small. It’s very much a choice they made. So the super-challenging thing is that you need to convince people that’s a false dichotomy – that’s not why they like working for you. What they like is that one individual can have a lot of impact and can move fast because there’s no unnecessary bureaucracy. So it requires an extremely active process of trying to avoid putting in unnecessary processes or red tape. You have to navigate to keep people with you while you’re going through rapid growth. It’s much harder than I initially thought.
Q: Does Canada have the right talent?
A: It’s almost too good. Everyone assumes we’re in San Francisco but I’m so glad we’re not there right now. There are way too few engineers for all the companies. Every single company I know that’s doing all right is trying to hire engineers and designers, so you have to come up with special ways of attracting and keeping people. So it’s good to be the largest fish in a medium-sized pond. We have really good relationships with the universities here; people are extremely smart, loyal and unbelievably driven. Whenever we’ve had to hire someone that’s really tricky to find because we’re looking for crazy experience in this or that, we’ve found someone in Canada every single time.
Q: Given your tech background, how difficult has it been to become a business leader?
A: It’s an ongoing change. Engineering teaches you how to learn new things quickly so that helps a lot. My approach is to read a lot of books about it – the same way I’d learn about a new technology. I think that many of the best-performing companies now are run by people whose core competency is very closely tied to the product the company creates – think of Mark Zuckerberg at Facebook or how [Steve] Jobs was very hands-on with the [Apple] product. It runs counter to what the MBA and business world preach but it might be a better thing – especially if you have technical founders – to have them run the companies. The only way to do this is to hire lots of people with very good people- management skills. I don’t do a ton of flying around for hand-shaking and so on. I go to networking events but not nearly as often as a CEO might because I’m more focused on product with my teams. That’s how my time is best spent.
Q: What was the biggest challenge in breaking into international markets?
A: We’ve always done well in the United States. Oddly enough, Canada was really hard for us to break into. You’d think that in a country where it’s really cold outside for half the year, people would buy more stuff online but no, it’s been pretty slow. It’s getting better, though.
Once we simply gave people tools that they can use themselves to translate our product into different languages, it spread mostly by word-of mouth through our customers to more countries.
Q: What’s your advice to anyone starting up a tech biz in Canada?
A: If you believe something needs to exist, if it’s something you want to use yourself, don’t let anyone ever stop you from doing it. The problem I see out there is that people are fishing for opportunities too much. There’s a lot of, ‘Hey, I found this inefficiency.’ Make sure you pick a good idea.
If you had a hobby that you loved when you were younger, along with a product you think people would appreciate, go for that. I spent my time growing up essentially between two things: technology and retail. I was fascinated by selling and loved the idea of making a profit, but I also spent a lot of time on technology.
I think everyone starting up a tech company should ask themselves whether what they’re building is a feature or a product. If you can’t see an obvious route of how you can charge money for something, then what you’re building is likely to be a feature of someone else’s product. If people optimize something they know there’s a market for, because they themselves want it, and it’s something they can charge money for, because it’s a product in itself, you’re already 10 steps ahead of everyone else.
Q: Do you have time for a personal life?
A: Absolutely. I have two boys, one two months old and a three-year-old, so that takes a lot of my personal life. I only work at night during the weekends. There was a time for 16-hour days early in the process. People get a bit crazy about this. But in fields where you use a lot of creativity to solve challenges, the best people might have five concentrated hours of work in a day. Anything else is just for set-up, answering e-mails and getting coffee. If I can get five concentrated hours out of someone, that’s all I can ask, myself included.
Crazy long work hours don’t make a lot of sense to me. That’s where New York and San Francisco have it wrong. You want to optimize for efficiency. Everyone needs to figure out for themselves how much sleep they need and how many hours of work they can do. I wish employers would start trusting their employees on these things.